TMI Blog2014 (12) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Board to the prescribed authority when a question arises as to whether and if so to what extent, any activity constitutes or constituted or any asset is or was being used for scientific research. If an assessee puts forth a claim of deduction u/s 35(1) for expenditure incurred on scientific research and if the AO is not inclined to accept such a claim, the question can be stated to have arisen - at no stage, right up to the Tribunal and even during the pendency of these appeals before the High Court, any such attempt was made by the revenue - Secondly, in the meantime, more than 20 years have passed since the assessee incurred the expenditure. Expecting the assessee to now produce minute details of the research activity undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion of the Central Board of Direct Taxes on the question whether the expenditure incurred by the assessee on its project at Pune was for research activities? 3. The facts of the present case are that during the course of assessment proceedings, the respondent claimed huge amount as expenses for research and development u/s 35 of the Act. The assessing officer relying upon the order of previous year disallowed the claim. Commissioner (Appeals) upheld the same. On further appeal the Tribunal reversed the order relying upon its order for the previous year wherein it had held that the activity carried on by the respondent did constitute research u/s 43(4) of the Act. The assessee had also claimed expenses as royalty as it was appointed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the matter is concerned, we are of the opinion that the Tribunal without discussing full materials on record, came to such conclusion which, in our opinion, ought not to have been done. These are matters of extreme scientific complexities. What was the nature of the research undertaken, what was the improvement in the existing software aimed at or desired, whether ultimately the product which was launched by the assessee after undertaking such so called scientific research, was a new product substantially different from the existing one or not were some of the issues on which the Tribunal, in our humble opinion, without bestowing sufficient attention ruled in favour of the assessee. We may caution that such issues of extreme scientif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... add that only when such a question arises that the reference would be competent. For example, if in a given case, the assessee lodges a claim without any supporting material, it cannot be stated that the question has arisen which would require a reference by the Board. Similarly, if the Assessing Officer accepts the claim of the assessee, no such question can be stated to have arisen. We are, however, unable to accept Shri Bhatt's contention that such a question would arise only when the assessment is finally framed and that thereafter the onus would be on the assessee to seek a reference. No such intention is emerging from section 35(3) of the Act. Whenever an Assessing Officer is not inclined to accept the assessee's case for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board to act in terms of section 35(3) of the Act to make a reference to the prescribed authority. It is undoubtedly true that the power of making such a reference lies with the Board and not with the revenue authorities, however, the act of the revenue authorities to place such an issue before the Board for making a reference cannot be seen as a reference made directly by the revenue authority. 30. The Assessing Officer not having obtained such a decision of the prescribed authority though a serious question in the present case had arisen, in our opinion, was not justified in rejecting the assessee's claim for deduction of expenditure incurred for scientific research. The Tribunal in this regard, in our view, came to a correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion on the materials on record. The question No.B is answered by holding that the reference ought to have been sought by the revenue before the Board to the prescribed authority and not having done so, the Tribunal was justified in reversing the orders of the revenue authorities rejecting the assessee's claim for deduction. 5. In that view of the matter, no elaborate reasons are required and we answer the question in favour of the assessee and against the Revenue. Accordingly, we answer question No. A by holding that the Tribunal itself ought not to have decided this question without the opinion of the prescribed authority, particularly without full discussion on the materials on record. Question No. B is answered by holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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